California's Woes In Perspective

PHOENIX -- For several years, my pilgrimage to the annual gathering of reporters who cover the nation's statehouses has usually included one or more experts telling the group, "Now if you want to really see a state with problems, look at California."

That's not changed much. But these days, at least we have some company.
With this year's three day Capitolbeat conference now wrapping up here in the capital of Arizona, it's clear that California is now one of many states struggling with unprecedented fiscal woes. But most of the experts who spoke to our motley crew of statehouse journalists believe the recovery is on the way. The trouble will be that it'll come in fits and starts... and, in our case, slower than other parts of the nation.

California is one of only nine states where revenues are projected to be higher this year than last, according to data compiled by the National Conference of State Legislatures. That may be, says NCSL's Arturo Perez, because we hit the trough of declining revenues earlier than many states.

But California may lag on another key element of importance to both lawmakers and the public: jobs. Data from Moody's Analytics shows that most western states are going to have job recoveries that depend on the stability (or lack thereof) of the housing market. Moody's data shows that of California's seven big markets -- Los Angeles, San Diego, Riverside, Santa Ana, San Francisco, Oakland, San Jose, and Sacramento -- three (LA, Riverside, Sacramento) are expected to fail to meet the projected 1.5% national employment growth by the end of 2011. And other parts of the nation may also struggle in the new year.

"The next six to 12 months is the period that we're most nervous about," Moody's analyst Chris Lafakis told journalists this weekend. Lafakis said one key element to watch is how states balance their budgets now that federal stimulus money has disappeared, dollars which in California's case were crucial to preventing even deeper cuts for schools and health care for the poor.

It appears that very few states have plans for how to make up those lost dollars, meaning that the need for smart budgeting is going to be bigger than ever before. "We know how to cut spending, we know how to raise taxes," said Bob Ward of the Nelson A. Rockefeller Institute of Government. "But we know very little about how to make programs more cost effective."'

Another issue talked about in depth this weekend was the looming crisis of public employee pensions, also one in which California's woes are interesting when put into context. Data from the Pew Center on the States shows that the Golden State is actually not too bad when it comes to what percentage of its pension obligations (annual stipends) are funded. California has 87% of that need accounted for -- nwhere near as good as New York (107%) or Florida (101%) but also nowhere near as bad as Oklahoma (61%) or Illinois (54%). Pew says 21 states have less than 80% of their pension obligations funded.

But that's assuming all of the assumptions about investment markets pan out. The shortfall of many states, ours included, grows dramatically if projected rates of return don't materialize. In addition, where California's retiree benefits woes seem especially troubling are in how little money we've set aside to pay for their health care benefits. Pew's 2007-2008 data shows we're one of 20 states that have set aside almost nothing for public employee retiree health care (though, to be fair, most states have set aside less than 10% of these costs).

Back to the current budget dilemma, the experts at this weekend's conference said that legislatures across the nation are going to have to accept that what's been considered the norm of post-recession recoveries has changed -- that this recession will be followed by decades of state revenues that are "fundamentally different" and, in some cases, much smaller.

And lest anyone think that there are tons of great ideas California can import to pinch pennies, consider some of the ideas implemented around the nation and compiled by the folks at NCSL:

Colorado lawmakers, aiming to recoup $100 million, removed several tax exemptions and credits, including the exemptions restaurants received for the cost of purchasing condiments and take-out containers; tax breaks ranchers got when buying pesticides and bull semen; and incentives bulk mailers enjoyed for printing coupon booklets.

The Oklahoma State Penitentiary cut expenses for its annual prisoner rodeo to save $120,000.

Wisconsin adopted 'Taco Tuesday' at all state prisons, saving 10 cents a meal.

And how do others see the horizon for state budgets? NCSL's Perez said they've coined a new word for the current mood in Hawaii... "cautioumistic."

About John Myers

John Myers is senior editor of KQED's new multimedia California Politics & Government Desk. He has covered California politics for most of the past two decades -- serving previously as Sacramento bureau chief for KQED News and, most recently, as political editor for KXTV News10 (ABC) in Sacramento. He moderated the only gubernatorial debate of 2014, and was named one of the nation's top statehouse reporters by The Washington Post. Follow him on Twitter @johnmyers.